Professional service firms plug the gap as consumer sector suffers

Professional services firms such as accountants, lawyers and marketing agencies have enjoyed the first quarter of "significant" growth in almost three years, according to the CBI.

However, the business body's latest service sector survey, which is published today, paints a less rosy picture for companies operating in "consumer services", encompassing the likes of hotels, bars, restaurants and travel firms.

It gives weight to other recent polls of service sector activity, which suggest that many businesses are beginning to struggle in the face of public sector cutbacks, rising costs and higher taxes. The sector is crucial to the health of the British economy and accounts for more than two-thirds of GDP.

The CBI's report was conducted between 31 January and 16 February and covers scores of companies in two areas - "business and professional services" and consumer services. It notes that the fortunes of the service sector "continued to diverge" over the past three months.

Firms operating in the business and professional services category saw the volume of business rise at a positive balance of 8 per cent. While the rise was modest, it marked the strongest outcome since May 2008. Meanwhile, the balance of firms forecasting an increase in the coming quarter, at +13 per cent, was the highest since August 2009.

In consumer services, the value and volume of business continued to fall, marking a full year of decline. Of those surveyed, 20 per cent said the value rose and 35 per cent said it fell, giving a balance of -15 per cent - the fastest drop since May 2009.

Ian McCafferty, the CBI's chief economic adviser, said the survey findings revealed "much about the broader economy". He said: "On the one hand, consumer spending is constrained, held back by rising prices and squeezed real incomes.

"On the other, there are signs that spending by businesses is picking up, helping to rebalance the economy away from consumer-driven growth.

"For the past year, consumers have been cutting back on leisure activities and other discretionary spending, with no indication of improvement any time soon."

The CBI said business and professional services firms had steadied their profitability "in the face of falling prices and rising costs".

There were contrasting fortunes between the two survey sectors where employment prospects were concerned.

Numbers employed in consumer services fell at the fastest rate for a year, while business-facing firms expect to grow their headcounts "modestly" in the coming three months.A more comprehensive survey of the UK service sector, published earlier this month, showed a return to growth in January after December's snow. But the Markit/Cips purchasing managers' index also recorded the sharpest rise in input cost inflation since the survey began.